The Weiss Group (which includes Weiss Research and Weiss Ratings, an independent provider of bank and insurance company financial strength ratings) has done it again. They’ve downgraded their outlook on U.S. debt. This time, from C to C-minus. From an e-mail I received Friday from chairman Martin Weiss, author of The Ultimate Depression Survival Guide: Protect Your Savings, Boost Your Income, and Grow Wealthy Even in the Worst of Times:
Weiss Ratings, an independent rating agency of U.S. financial institutions and sovereign debts, has downgraded the debt of the United States government from C to C-minus.
The C-minus rating for the U.S. reflects a continued deterioration in the weaknesses cited in the Weiss Ratings release of April 28, 2011, including heavy debt burdens, shaky international stability, and poor economic health.
Weiss Ratings senior financial analyst Gavin Magor commented: “Our downgrade today is not contingent on the outcome of the debt ceiling debate in Washington. It is driven exclusively by the numbers, which indicate that, in addition to a decline in the long-standing weaknesses we noted three months ago, the U.S. has already lost the golden halo that helped guarantee liquidity and acceptance of its government securities in global markets.”
On the Weiss Ratings scale, which ranges from A (excellent) to E (very weak), a C-minus rating is the approximate equivalent of a triple-B-minus on the scales used by other credit rating agencies, or approximately one notch above speculative grade (junk).
(Editor’s note: Italics added for emphasis)
Dr. Weiss noted in his e-mail:
Although we are not predicting a default, this downgrade adds urgency to our earlier recommendations to avoid all medium- or long-term government securities. You can still hold short-term T-bills. But be sure to hedge against the growing dollar risks with gold or equivalent.
(Editor’s note: Italics added for emphasis)
(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein. See “Legal Disclaimer” on “Disclaimer and Policies” page for more information.)
Regular readers of this blog might remember me mentioning Martin Weiss, chairman of The Weiss Group (which includes Weiss Research and Weiss Ratings, an independent provider of bank and insurance company financial strength ratings) and author of The Ultimate Depression Survival Guide: Protect Your Savings, Boost Your Income, and Grow Wealthy Even in the Worst of Times. Twice, I’ve selected free tools from Weiss Ratings as “Resource Of The Week”:
• Weiss Ratings on TheStreet.com– Every quarter, Weiss Ratings on TheStreet.com monitors the financial strength of 9,000 commercial banks, savings banks, and savings and loans across the nation
• Weiss Ratings’ “Strongest & Weakest Lists”– Weiss Ratings provides free access on their website to their “Strongest & Weakest Lists” for annuity insurers, auto insurers, banks and thrifts, business insurers, credit unions, health insurers, homeowner insurers, life insurers, long-term care insurers, and medigap insurers
Earlier this week, Weiss and his ratings company made financial headlines for their outlook on U.S. debt. From CNBC.com on May 3:
There have been increasing concerns about the fate of United States’ prized triple-A sovereign debt rating. While Standard and Poor’s recently downgraded its U.S. debt outlook to negative from stable, implying that a ratings cut could happen in two years, one independent ratings agency has given the U.S. sovereign rating a “C”.
“A ‘C’ is equivalent to approximately a triple-B on the S&P, Moody’s and Fitch scales. It’s two notches above junk and one notch above the equivalent of a single A,” Martin Weiss, President of Weiss Ratings, told CNBC Tuesday.
Weiss was quick to add that while the rating seems weak, the debt situation is not in a danger zone that would trigger panic, noting that there was still broad market acceptance for Treasurys.
The grade reflects the U.S. massive debt burden, low international reserves and the volatility in the American economy, he said.
“US Debt Rating Should Be ‘C’: Independent Agency.” CNBC.com. 3 May 2011. (http://www.cnbc.com/id/42871647). 6 May 2011.
Last week I retrieved a recent issue of Weiss Ratings’ Money and Markets investment newsletter from my inbox. For those of you not familiar with Weiss Ratings, they issue Financial Strength Ratings for more than 11,000 financial institutions in the United States. In that March 15 issue, the Florida-based company announced:
While the nation’s 7,500 credit unions generally offer lower cost banking services to consumers, 2,573, or 34.3%, are included on Weiss Ratings’ “Weakest List,” while only 760, or 10.1%, are on the “Strongest List.”
Weiss Ratings, the nation’s independent provider of bank and insurance company ratings, has now also begun issuing financial strength ratings on the nation’s credit unions to help consumers avoid high-risk institutions and find those that are most likely to survive even in difficult times.
“On the heels of the worst year for bank failures since 1992, plus the latest round of new bank fees for everyday services, many consumers may consider credit unions an attractive alternative,” commented Martin D. Weiss, president of Weiss Ratings. “But consumers should avoid the weakest institutions and seek to do business strictly with the strongest.”
Following a pattern similar to its bank and thrift ratings, Weiss Ratings’ new credit union ratings analyze each institution’s capitalization, asset quality, profitability, and liquidity to determine financial strength.
Readers might recall that back on December 10, 2010, I talked about the banking crisis being alive and well in the United States, and how one can find out if their bank is safe. I noted that a number of free bank rating systems existed on the Internet to help with this task, with Weiss Ratings on TheStreet.com being one of them. Every quarter, Weiss Ratings on TheStreet.com monitors the financial strength of 9,000 commercial banks, savings banks, and savings and loans across the nation.
Now, Weiss Ratings provides free access to their “Strongest & Weakest Lists” for not just credit unions, but annuity insurers, auto insurers, banks and thrifts, business insurers, health insurers, homeowner insurers, life insurers, long-term care insurers, and medigap insurers as well. The “Strongest & Weakest Lists” can be accessed on the Weiss Ratings home page. Viewing these lists does require registration- which is free.
Looking at the “Strongest Credit Unions” in my state (Illinois), just 15 of these financial institutions merit a “strong” classification, while 166 credit unions appear on Weiss’ “weakest” list. From their website:
Which institutions are included in the Weakest and Strongest lists?
The Weiss Ratings Weakest Lists include only institutions with a Weiss Financial Strength Rating of D+ or lower — institutions we believe to be “vulnerable” to future financial difficulties or even failure, based on our analysis of their capital, asset quality, earnings, liquidity and other factors. Most “vulnerable” institutions will not ultimately fail. However, we believe that the risk of failure is higher.
The Weiss Ratings Strongest Lists include only institutions with a Weiss Financial Strength Rating of B+ or higher. Weiss Ratings does not guarantee that all of these institutions are completely safe. However, we believe that the risk of failure is very low.
Navigating around Weiss Ratings’ “Strongest & Weakest Lists” is very easy. Regrettably, only letter grade ratings are provided with this free tool- which is still quite informative. According to the website, unlimited access to their popular ratings and reports is available.
Looking for more information about a particular institution, or one that doesn’t appear on a “strongest” or “weakest” list? Navigate to the drop-down menu “Ratings & Research” near the top of the home page and select “Search for a rating.” Fill out the information and select “Search.” Here you can order a “Company Report” for that institution for a fee.
Once again, Weiss Ratings provides yet another fine tool for finding out whether or not an institution is safe and sound.
You can access Weiss Ratings’ “Strongest & Weakest Lists” here.
(Editor’s note: Link added to the “Resources” page)
“Weiss Ratings: Over 2,500 U.S. Credit Unions Considered Weak.” Money and Markets. 15 Mar. 2011. (http://www.moneyandmarkets.com/over-2500-u-s-credit-unions-considered-weak-43400). 24 Mar. 2011.
The International Monetary Fund has told some of the world’s largest economies to implement deficit cutting plans or risk a repeat of the sovereign debt crisis that has engulfed Greece and Ireland.
The warning by the Washington-based body today came as ratings agency Standard & Poor’s cut Japan’s long-term sovereign debt rating for the first time since 2002, saying Tokyo lacked a plan to deal with its debt.
The IMF said Japan, America, Brazil and many other indebted countries should agree targets for bringing borrowing under control. In an updated analysis on global debt and deficits, it said the pace of deficit reduction across the advanced economies was likely to slow this year, mainly because the US and Japan are preparing to increase their borrowing.
–The Guardian (UK), January 27
Despite all the efforts of governments and central banks around the world, the debt crisis is alive and well. As is the banking crisis. While going through my e-mails this morning I happened to come across the following from Martin Weiss, chairman of The Weiss Group (which includes Weiss Research and Weiss Ratings) and author of The Ultimate Depression Survival Guide: Protect Your Savings, Boost Your Income, and Grow Wealthy Even in the Worst of Times. In yesterday’s issue of his Money and Markets letter Dr. Weiss wrote:
Indeed, just when Wall Street and Washington seemed to have most investors convinced that “the debt crisis is history,” a whole new series of shocks have rocked the world:
Egypt and Tunisia — supposedly models of economic stability and growth — are now prime candidates for financial defaults.
In response, Moody’s, Fitch, and S&P have hastily issued sovereign debt downgrades on both countries.
But no one — either in the U.S. or in the region — has a clue regarding the end game in the Arab world. Nearly all analysts have continually underestimated how far the upheaval can spread … how quickly governments can fall … how directly oil supplies can be crimped … and how broadly the crisis can impact the global economy.
Greece and Ireland — thought to be “saved” by the European Union and the International Monetary Fund (IMF) — are likely to ultimately default on their debts anyhow, according to a majority of economists surveyed by Bloomberg last week. Meanwhile, Portugal, Spain, Belgium, Italy, and other weak links in Europe are still reeling toward disasters of their own.
Several U.S. states are on the brink of financial ruin, facing $175 billion in deficits … $2.5 trillion in obligations to underfunded pension funds … and overall conditions so severe that Congress is quietly preparing new legislation to let them go bankrupt — possibly the only way out of their mess, according to the New York Times.
Hundreds of cities and towns are in worse shape, with one already- bankrupt city proposing that creditors get paid a meager five cents on the dollar.
And perhaps most ominous of all …
The IMF has just warned that the governments of the United States and Japan — the two single largest debtors on Earth — are risking a repeat of the sovereign debt crisis which engulfed Greece and Ireland.
Its reasoning: Despite endless budget debates, deficit commissions, and empty promises of “firm action,” neither country has lifted a finger to stop their debt explosions. This year …
• The U.S. is running its largest deficit of all time — nearly $1.5 trillion, according to the U.S. Congressional Budget Office, while …
• Japan has let its government debt burden soar past 200 percent of GDP, permanently crippling its economy.
Clearly, the debt crisis is not over. And obviously, we are not facing just one or two isolated brushfires. There are simply too many explosions in too many different regions and sectors to ignore.
What About the Banking Crisis?
Banking troubles may not be the lead headlines right now, but that doesn’t mean U.S. banks are out of the woods.
Quite the contrary, Weiss Ratings bank analyst Gene Kirsch tells us that:
• A total of 2,667 U.S. banks and thrifts now merit a Weiss rating of D+ (weak) or lower. And according to an evaluation of our rating scale by the Government Accountability Office (GAO), any Weiss rating in that category implies the institutions could be “vulnerable” to future financial difficulties or failures — not the best place for your money, despite FDIC insurance.
• In contrast, only 899 banks and thrifts merit a Weiss rating of B+ or better, which we consider strong.
Worse, on a state-by-state basis, the vulnerabilities in the banking industry are even more apparent! Gene scrutinized the banking environment in each of the 50 states plus the District of Columbia, and he found that:
1. Seven states are suffering a shockingly high rate of bank failures — 4 percent in California; 5 to 6 percent in Washington, Oregon, Georgia and Florida; over 8 percent in Arizona; and a whopping 11 percent in Nevada!
2. In 12 states, more than HALF of the banks domiciled there have a Weiss rating of D+ or lower, as follows:
3. As you can see in the table above, the banking environment in Florida and Arizona is the worst of all: If you walk into a bank or thrift domiciled in either state, the chances are better than 7 out of 10 that you’ll be dealing with an institution that’s vulnerable.
How do we know?
Our Weiss ratings are based on the data the banks themselves submit to the authorities every quarter. We weigh each bank’s capital, earnings, asset quality, and liquidity. We check their vulnerability to mortgage defaults, rising interest rates, and any major crisis we believe could impact your safety.
Since 1990, we have issued grades on a total of 1,533 banks that subsequently failed and …
• For 90 percent of those banks, we issued a clear warning to the public ONE FULL YEAR ahead of time (defined by the GAO in its study of our ratings as a Weiss rating of D+ or lower).
• On nearly all of the rest, we issued a warning or a caution flag at least a few months before the failure.
Now, in more recent times, the problems in the banking industry have gotten a lot worse. Not only have we seen more bank failures, but we also have had more BIG bank failures.
In fact, just in the last two years, 49 relatively big banks and thrifts (with $1 billion or more in assets) have failed — and Weiss Ratings has issued an advance warning on every single one.
So when we say that at least seven out of 10 banks domiciled in Florida and Arizona are vulnerable, we’re not exaggerating.
It doesn’t mean all of them will fail; many should be able to avoid failure. What it does mean is that nearly all of these banks are probably at risk.
You Ask: “If My Bank Fails, Won’t the FDIC Cover My Account up to $250,000?”
Yes. But never forget:
• The FDIC does not cover investments you may have in bank-holding companies — such as common or preferred shares, bonds, or debentures.
• The FDIC does not guarantee continuation of your interest rate, lines of credit, or other business you may have with your bank.
• And ultimately, given the state of the nation’s finances overall, don’t be surprised if future FDIC’s coverage of failed banks involves serious delays and inconveniences.
Most important, never forget that you DO have choices. As Gene points out, there ARE 899 U.S. banks and thrifts that are financially strong — with or without the FDIC.
Plus, there are also states in which vulnerable banks are rare and bank failures even rarer — such as Iowa, Nebraska, South Dakota, West Virginia, and even Texas…
Good luck and God bless!
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
Couldn’t have said it any better myself.
Weiss, Martin. “Shocking New Failures Possible in the U.S. and Overseas.” Money and Markets. 31 Jan. 2011. (http://www.moneyandmarkets.com/shocking-new-failures-possible-in-the-u-s-and-overseas-2-42535). 1 Feb. 2011.
The banking crisis is alive and well in the United States. MarketWatch’s Robert Schroeder wrote on November 23:
The number of problem banks in the U.S. grew in the third quarter to the highest level in over 17 years, the Federal Deposit Insurance Corp. said Tuesday, even as the banking industry reported another quarter of healthy profits…
The number of troubled banks rose to 860 from 552 a year ago, the highest since the 928 institutions in March 1993. In the second quarter of 2010 there were 829 problematic banks…
The agency’s deposit insurance fund, meanwhile, remained in deficit at negative $8 billion.
So far this year, 149 banks have failed. From the UPI on November 20:
U.S. bank failures totaled 149 for 2010 by the end of the week, federal bank regulators said.
With failures of the First Banking Center in Wisconsin, the Gulf State Community Bank in Florida and the Allegiance Bank of North America in Pennsylvania, the Federal Deposit Insurance Corp. said bank failures for the year were now nine ahead of the total number of failures posted in 2009, The Wall Street Journal reported Saturday.
In comparison to the Great Depression era, during the 1920s an average of 70 banks failed annually across the country. After the October 1929 stock market crash throughout the first 10 months of 1930, 744 banks failed- 10 times as many. In one year alone- 1933- it’s estimated that 4,000 banks closed their doors. In total, 9,000 banks failed during that entire decade.
The U.S. banking crisis doesn’t appear to be going away any time soon either. Bloomberg’s Phil Mattingly wrote back in June:
U.S. bank failures through 2014 will drain $60 billion from the Federal Deposit Insurance Corp. fund that protects customer accounts in the event of a collapse, the agency said today.
“We expect bank failures to peak this year and start tapering off next year as the banking industry continues to heal and recover, but there are some uncertainties that lie ahead,” FDIC Chairman Sheila Bair said today at a meeting in Washington.
In light of all this information, how can one find out if their bank is safe?
Thankfully, a number of bank rating systems exist to help with this task. Three popular ones, Bank Star Ratings by BauerFinancial, Safe & Sound® by Bankrate.com, and Weiss Ratings on TheStreet.com, can be accessed on the Internet and are free of charge (BauerFinancial charges for more in-depth info about the institution being analyzed). Here’s a breakdown of the three free bank rating systems:
BauerFinancial, Inc. has been analyzing and reporting on the financial condition of the nation’s banking industry since 1983. According to their website, they have earned the reputation of “the nation’s bank rating service,” as hundreds of newspapers utilize their ratings for their readers. Ratings are derived from each bank and credit union being required to file a detailed financial report with federal regulators four times a year. BauerFinancial obtains this data in its raw form from the government. The quarterly data is subjected to a thorough analysis and is compared with historical data for consistency. Upon completion of the analysis, a star-rating is assigned based on a scale of zero to five stars with five stars being the strongest.
Bank Star Ratings by BauerFinancial
Bankrate.com’s Safe & Sound® service is a proprietary system designed to provide ratings information on the relative financial strength and stability of U.S. commercial banks, savings institutions, and credit unions. The system applies more than 20 tests to each institution to measure that institution’s capital adequacy, asset quality, profitability, and liquidity. Individual performance levels are determined from publicly-available regulatory filings and are compared to asset-size peer norms, industry standards, and key absolute benchmarks. Combined results form the basis of the Safe & Sound® ratings. When possible, the system also produces a report that provides a detailed explanation of the findings for each rated financial institution.
Safe & Sound® ratings provide a star rating system to evaluate the current financial status of financial institutions. The most desirable rating is five stars; the least desirable is one. Performing institutions will generally receive a rating of three or more stars with the majority of financial institutions falling into the three- to four-star range. The top retail banks, thrifts and best credit unions will have a star rating of three or higher.
Safe & Sound® by Bankrate.com
Every quarter, Weiss Ratings on TheStreet.com monitors the financial strength of 9,000 commercial banks, savings banks, and savings and loans across the nation. Ratings are derived, for the most part, from quarterly financial statements filed with federal regulators. Companies being rated are not granted the right to influence the ratings or stop their publication. Ratings are assigned by analysts based on a complex analysis of hundreds of factors that are synthesized into five indexes: capitalization, asset quality, profitability, liquidity and stability. These indexes are then used to arrive at a letter grade rating. A good rating requires consistency across all indexes. A weak score on any one index can result in a low rating, as insolvency can be caused by any one of a number of factors, such as inadequate capital, poor underwriting practices, operating losses, or the failure of an affiliated company.
Weiss Ratings on TheStreet.com
I decided to test the three bank rating tools out myself. Navigation-wise, all three are similar in that they are very simple to use. Information-wise, it’s a different story. Weiss Ratings on TheStreet.com only provides a letter grade rating for a particular bank. No other information is made available from what I could tell. BauerFinancial’s Bank Star Ratings also takes a minimalist approach, offering only a star rating for an institution when using the free search. However, as I mentioned previously, there are a variety of reports available for those desiring more information, starting at $10. Finally, there’s Safe & Sound® by Bankrate.com. Data-junkies like me will appreciate this rating system. Like BauerFinancial, Bankrate uses a star grade for each bank. However, Bankrate also provides a “Memorandum on findings” and “Financial statement” when possible as well. And the info provided is pretty substantial.
One more thing, perhaps a person is looking for a new bank and wants to find one that is “safe.” Weiss Ratings and Safe & Sound® is set up to do that as well.
All in all, when looking at a bank’s safety rating, if one wants to keep things simple (star rating or letter grade rating), Bank Star Ratings by BauerFinancial and Weiss Ratings on TheStreet.com accomplish this. If one wants to investigate further, Safe & Sound® by Bankrate.com is the best tool for the job. As for me, I’d use all three in looking at how safe my bank is. Obviously, there are no guarantees in life, and these ratings should not be relied upon exclusively in making banking decisions. However, they do offer valuable insights into a bank’s financial health.
(Editor’s note: Links to all three free bank rating systems have been added to the “Resources” page)
Schroeder, Robert. “Problem banks grow in third quarter, says FDIC.” MarketWatch. 23 Nov. 2010. (http://www.marketwatch.com/story/us-problem-banks-grow-to-860-in-third-quarter-2010-11-23). 10 Dec. 2010.
“U.S. bank failures reach 149 for the year.” UPI. 20 Nov. 2010. (http://www.upi.com/Business_News/2010/11/20/US-bank-failures-reach-149-for-the-year/UPI-89981290270591/). 10 Dec. 2010.
Mattingly, Phil. “Bank Failures Through 2014 Will Drain $60 Billion From FDIC, Agency Says.” Bloomberg. 22 June 2010. (http://www.bloomberg.com/news/2010-06-22/bank-failures-through-2014-will-drain-60-billion-from-fdic-agency-says.html). 10 Dec. 2010.
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